Big Shitpile
mikethemadbiologist | October 23, 2008I've found a good post that does a very good job of laying out some of the long range and immediate factors that lead to our current economic woes. David Paul lays out how credit default swaps (CDS's) lead to the collapse of AIG (italics mine):
...AIG's collapse came as a result of the following sequence of events:
1. In the wake of the decline in real estate prices, the market value of mortgage-backed securities declined.
2. Under accounting rules that were established after the downfall of Enron -- implemented to require rapid disclosure of investment losses -- AIG marked down the value of…
mikethemadbiologist | October 17, 2008If there were ever an argument for high income tax rates on large incomes (i.e., greater than five million), AIG is making it. The arrogance of its executives, even after a bailout, can only be called by its true name--corruption (italics mine):
NEW YORK (Reuters) - American International Group, the insurance giant that drew fire for executive "golden parachutes" and an ill-timed junket even as it receives a massive taxpayer bailout, has agreed to mend its ways.
AIG promised to recover executive payments and other compensation, cancel perks and institute reforms one day after New York…
mikethemadbiologist | October 5, 2008
(from here)
Well, the bailout bill passed, and we'll have to see if it actually does anything. What's gone missing in the discussion surrounding this bill (among other things) is any discussion of the assumptions underlying this legislation. Ian Welsh spells them out:
If you believe any of:
1) That the paper will not return high enough [profits] to recoup losses, since Treasury will be buying it at above market value;
2) That this is the beginning of more than a normal recession;
3) That Paulson in particular and Treasury in general will not make getting the money back a priority, but…
mikethemadbiologist | September 28, 2008In the midst of the financial crisis, I think we've lost sight of the real victims here--people trapped in a housing debt prison:
...they were counting on increasing income and increasing home prices to finance their lifestyles and their family's future. It isn't going to turn out well for them.
Even if these people get a workout that allows them to stay in their homes, the terms of the workout are not going to leave them much to live on. Any workouts are going to have the highest possible DTI the government thinks you can handle (currently 38%,) and to qualify for the workout, the homeowner…
mikethemadbiologist | September 25, 2008It's not great, and I would like to see more things in it that can be negotiated away, but it still hits most of the points I raised. Outsourced to Ian Welsh:
So yeah, the Dodd plan. Good plan. Buying up mortgages for 15% less than the current market value of the house, then reissuing a clean mortgage to homeowners helps the banks while still giving them a slight haircut (but only slight, odds are home prices will drop more than 15% before the slide is over.) It helps homeowners stay in their houses. It sets a market price so that banks know what mortgages are worth and thus what the…
mikethemadbiologist | September 25, 2008First, the last name of "Kaptur" is awesome. Also, she has an accent that is nearly as ridiculous as Palin's, so Kaptur must be a 'real' American:
There's really no reason to get stampeded into this.
mikethemadbiologist | September 22, 2008Before I get to the letter I sent to my Congressional delegation, I want to discuss why the proposed bailout matters if you consider yourself a friend of science.
It's very simple: if we sink $700 billion or more into propping up brokers you can kiss any science-related initiatives goodbye. No increases in certain basic research areas. No increases for public health. No research and development of green technologies. None of the things that a bunch of ScienceBloglings are talking about here. Instead, it all disappears down the porcelain crapper.
There is no science fairy: the most…
mikethemadbiologist | September 21, 2008If it's wrong when the government gets into the health insurance business*, why it is right when the government gets into the financial insurance business? Surely, physical health is as important as financial health?
Never mind.
*Of course, government is already in the health insurance business in a really big way to begin with.
mikethemadbiologist | August 27, 2008If there was a crucial tile in the Jenga Pile o'Shit (also known as the recent financial meltdown), it was the cratering of Bear Stearns stock. I can't have been the only one who thought, "Damn if I had only shorted Bear Stearns...." Turns out some anonymous investors did just that under some...unusual circumstances:
As the story lacked prurient interest, it was left to Bloomberg.com to
unearth persuasive information that the Wall Street firm was seemingly brought down by a conspiracy that netted its participants a profit of upwards of $250 million on an investment of $1.7 million in a week…
mikethemadbiologist | March 8, 2008By way of ScienceBlogling Joseph, we learn of yet another way the collapse of the housing market will increase your state and local taxes (or require cuts in services). When investors stopped buying certain municipal bonds, the interest rates on the bonds skyrocketed--that is, it will cost cities and states more money (i.e., tax dollars) to pay back these loans. Not because the loan holders did anything wrong, but simply because investors just didn't want to play. Now, to add insult to injury, Wall Street investors are charging additional fees to purchase these loans:
The collapse of the…
mikethemadbiologist | March 4, 2008I've written before about how the Collapse of the Jenga of Shit (aka the 'subprime' loan crisis) has raised the price of borrowing money--which is paid for with higher state and local taxes--due to the collapse of bond insurers and a liquidity crisis in municipal bonds. Now your property and sales taxes can take another hike courtesy of ratings agency like Standard & Poor's, Moody's Investors Service, and Fitch Ratings. From the New York Times (italics mine):
If they are right, billions of taxpayers' dollars -- money that could be used to build schools, pave roads and repair bridges --…
mikethemadbiologist | January 30, 2008New England Patriots quarterback Tom Brady is doing just fine. From The Boston Courant (Jan. 26, 2008):
Tom Brady, the New England Patriots star quarterback, is a winner on and off the field.
Brady has sold his 314 Commonwealth Avenue condominium for $5.3 million, as reported last week by Banker & Tradesman, turning an approximately $1.2 million profit on the sale to a surburban couple.
Brady purchased the three-bedroom condo in the Burrage House, located at the corner of Comm Ave. and Hereford Street, for $4.1 million in 2004. The 10-room, 3,422-square-foot home comes with three-and-a-…
mikethemadbiologist | January 26, 2008It's interesting how we're trained to tolerate or engage in a lot of behaviors that, rationally, don't make much sense. Workers who realize that, in today's job market, loyalty to a company doesn't make much sense, are accused of disloyalty by their employers, even though those same employers will let employees go at the drop of a hat. Another economic morality tale is that letting a bank foreclose on your home is an awful thing, even when foreclosure makes economic sense:
...why should Mr. Lewis be "astonished" that people who can pay their mortgage refuse to do so when the home value is…
mikethemadbiologist | January 20, 2008That bond issue to build a new school or road just became more expensive. Say hello to higher property and sales taxes or cuts in services. Strap on the ol' thinkin' cap and I'll get to 'splainin' it.
Got it strapped on tight? Good.
If you're a municipality and you want to float a bond to build a water reclamation plant, you would want the lowest interest rate possible, just as you yourself would if you were buying a house. Many municipalities don't have good bond ratings (or as good as they would like), so they therefore pay higher interest rates. This opened the way for municipal bond…